Report: Pay Regulation Shifts Financial Services Firms’ Focus to Talent

New York — June 18

New compensation regulations following the financial crisis are causing global financial services companies to focus on talent management and on rewards beyond pay to help them attract, retain and engage top talent, according to a poll of financial services executives.

The poll, conducted by professional services firm Towers Watson, also found that companies are evenly divided on the impact that the current regulatory environment is having on risk taking in the industry.

In the wake of the financial crisis, several countries have enacted legislation aimed at curbing risk taking by large financial companies. In the U.S., for example, both the Troubled Asset Relief Program (TARP) and the Dodd-Frank Wall Street Reform and Consumer Protection Act require financial institutions to review and disclose whether their compensation programs encourage executives, traders and other employees to take “excessive” risks.

Similar rules were adopted in many European companies following guidelines issued by the Financial Stability Board in 2009.

Dodd-Frank also imposes “clawback” rules that require companies to recoup compensation following financial misstatements and in some other circumstances. The European Union’s Compensation Review Directive III goes even further in regulating financial industry compensation. Those regulations are being expanded from banks to other industry sectors.

According to the poll, half of the respondents see little or no impact on risk taking in their organizations resulting from the recent regulations while the other half said pay structure regulations have had at least a moderate impact. Seven percent said the new regulatory structure has had a significant impact, while another 7 percent indicated that pay structure regulation has fundamentally changed the industry’s approach to risk taking.

The poll of almost 90 senior human resource executives at leading financial services companies was conducted on May 18 at a Towers Watson conference in New York.

Source: Towers Watson